Hawai'i's mortgage lenders saw a nearly 50 percent drop in business in the first three months of the year as home sales slowed and lending rules were tightened.

The total value of residential mortgages, commercial real estate loans and home refinancings statewide dropped to $5.2 billion during the three months ending March 31, from $10.4 billion in the year-earlier period, according to figures compiled by Title Guaranty.

The number of new loans fell 32.5 percent during the quarter to 13,390 from first quarter 2007's 19,825.

The decline in business will cut into commissions for brokers working at the more than 60 mortgage companies with offices in Hawai'i. Brokers are typically paid commissions based on the dollar amount of loans they bring in.

The mortgage lending slump provides more evidence that the real estate market is cooling. According to the Honolulu Board of Realtors, the number of single-family home and condo sales on O'ahu has dropped around 20 percent during the first quarter while prices have remained relatively flat.

"We've had a fabulous run-up in the real estate market and we're now seeing the impact of a normal slowdown in real estate activity," said Mike Sklarz, real estate economist and president of New City Technology.

"At the same time, some of the big lenders connected with subprime problems on the Mainland ended up pulling back everywhere including Hawai'i."

Like Realtors, loan officers and mortgage brokers are paid by commission on the volume of loans they bring in.

The typical loan officer receives anywhere between 35 percent and 70 percent of the 1 percent upfront fee, or points, charged by a bank or mortgage lender on the total value of the loan, several mortgage industry professionals said. On a $250,000 loan, a loan officer could make anywhere between $875 and $1,750 in commissions.

A mortgage broker could typically make more than the loan officer. The mortgage broker's cut usually ranges between a half-percent to a full percent of the loan amount, meaning that their take from a $250,000 loan could range between $1,250 and $2,500.

SALARIES SOARED

During the past several years, it wasn't unusual for local loan officers and mortgage brokers to be making more than $100,000 a year, while some of the busiest loan officers could be making several times that amount.

The slowdown in the mortgage business means less income for loan officers and mortgage brokers, especially for newcomers to the industry like Brandon Bera.

The Hawai'i Kai resident recently left his job of a year and a half as a mortgage consultant to invest in real estate projects.

"I just phased out because it was so slow," Bera said. "It wasn't worth my time anymore."

Mainland-based mortgage lenders that specialized in subprime loans — such as Countrywide Bank, GMAC Mortgage USA and MortgageIT Inc. — have suffered huge declines in their Hawai'i loan volume.

Some — including First Magnus Financial Corp. and America Home Mortgage Co. — have closed their Hawai'i offices in the past year.

Until recently, Countrywide had been the state's largest mortgage lender. In 2006, the company and one of its affiliated companies issued more than $3.2 billion in new residential and commercial loans, according to figures compiled by Title Guaranty.

Last year, Countrywide's local loan volume dropped by half to about $1.6 billion. The company has since been supplanted by Wells Fargo Home Mortgage Inc. as Hawai'i's No. 1 mortgage lender.

The turmoil in the nation's mortgage market has had little impact on Hawai'i-based banks.

First Hawaiian Bank, Bank of Hawaii Corp. and American Savings Bank — which have shunned the subprime market — have experienced steady growth during the quarter, according to figures provided by Title Guaranty.

For many mortgage companies, the subprime meltdown has led to tighter lending standards. Subprime, or higher-risk, loans issued by mortgage companies in the past several years to boost business have led to a rise in foreclosures as the borrowers were unable to keep up with payments.

Borrowers today require higher credit scores and larger down payments than in previous years, said Marie Imanaka, president of Wells Fargo Home Mortgage of Hawaii.

TIGHTENING CREDIT

The use of "stated-income" loans and "no-asset" loans —loans in which borrowers do not have to provide W-2 forms or pay stubs to verify their income levels — have also been curtailed.

"I see this as going back to basics," Imanaka said. "Now we verify everything."

Maui resident Elizabeth Phillips sees herself as a casualty of the new lending standards.

Phillips said she and her husband Brad have good credit scores and both have steady jobs, but they don't have enough saved for a down payment.

Phillips, an insurance agent in Kihei, and her husband, an executive chef in Lahaina, qualified for a zero-down payment loan in October but were unable to buy because the loan only gave them three days to find a new home.

Since then, lenders have tightened requirements, making it virtually impossible for the couple to get a similar zero-down payment loan, she said.

The couple are looking to rent in the Kihei area so they can save money for a down payment.

"It's been pretty frustrating," Phillips said.

"We're getting penalized because of people who have filed for bankruptcy or have been foreclosed on. Unfortunately, the market has decided to penalize everyone."

Many industry professionals have fled the mortgage industry in the wake of the downturn.

Bera, the former mortgage consultant from Hawai'i Kai, sees the current slump as part of a normal, cyclical shakeout.

"The reality of the situation is that if you are a qualified borrower, you won't have a problem getting a loan," Bera said.

"The people who were borderline are the ones who are getting affected."